Brian Souter's East Coast rail contract collapses

The government may be forced to step in and run train services on the East Coast Main Line after it emerged its operators could go bust within months.

The financial situation at Virgin Trains East Coast has been described as "urgent". Picture: TSPL

Transport Secretary Chris Grayling told MPs the financial situation at Virgin Trains East Coast was “urgent” and could not continue beyond “a very small number of months”.

The revelation came as he confirmed Virgin Trains’ contract to run services on the West Coast Main Line was conversely being extended. Perth-based transport group Stagecoach and the French national railway SNCF will join a consortium that will also run services on the HS2 highspeed line.

The East Coast franchise – a joint venture between Stagecoach and Virgin Trains – had “got its sums wrong” and “breached a key financial covenant”, Mr Grayling said. The contract was already due to end three years early in 2020 after its operators ran into financial trouble.

The National Audit Office has announced it would investigate the government’s handling of the railway.

“Since 2015, the franchise has met all of its commitments to the taxpayer, returning nearly £1 billion to the public purse,” Mr Grayling told the House of Commons yesterday, after markets had closed. “But this has come at a substantial cost of nearly £200 million to Stagecoach.

“I’ve already informed the House that the franchise will in due course run out of money and will not last until 2020.

“It has now been confirmed that the situation is much more urgent.

“It is now clear that this franchise will only be able to continue in its current form for a matter of a very small number of months and no more.”

Mr Grayling said the train services would continue as normal, operated either by Virgin Trains on a not-for-profit basis or by the government.

It is the second time the franchise to operate the East Coast Main Line has collapsed in the past decade. A publicly-owned operator ran the railway from 2009 to 2015 after National Express gave up the franchise after running out of money.

Virgin Trains East Coast, which is 90 per cent owned by Stagecoach, was awarded the contract in 2014. Stagecoach Group was founded by Scottish businessman Brian Souter, who chairs the company.

The RMT union called for the franchise to be immediately renationalised. Mick Cash, the RMT general secretary said: “This shameful fiasco on one of Britain’s main rail routes needs to end and it needs to end now.

“East Coast should be renationalised with immediate effect and the scale of the scandal unveiled today should mark the point at which the whole rotten business of rail privatisation in Britain was called to a halt.”

Labour’s Shadow Transport Secretary Andy McDonald MP said the government’s rail franchising policy was “in chaos”.